Destroying the Dollar For Something Logically Impossible

Real Clear Markets ^ | 08/18/2011 | Jeffrey Snider

[SeekAndFind]

The politics of economics has again risen in the wake of the stock market's recent haircut. Economists and experts from both the right and the left are now falling all over themselves to "do something". Why the stock market is the universal signal, the hunter's bugle call to action, is not yet known. After all, the economic and financial problems of August 2011 have been largely unchanged since August 2007, and indications of these unresolved imbalances have been, and continue to be, numerous.

What is troubling is this bipartisan political urge to "do something". In the space of a few days we have seen Paul Krugman on the left openly pine for "an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems" (in addition to his idea of faking an alien invasion). On the right, Ramesh Ponnuru, senior editor at the conservative magazine National Review, similarly argues for loose monetary policies.

Writing in Bloomberg, Ponnuru supposes that monetary policy has been effectively "tight", not loose. To this end, he advocates, like Krugman, a concerted monetary accommodation far above current efforts, openly conceding that inflation will come with it. The pay off for both Krugman and Ponnuru is believed to be beneficial economic activity that accompanies this new inflation.

These ideas are exactly the same as what has passed for monetary policy to date, but it seems now we are simply left to debate the size of intervention. Indeed, this line of thinking has been circulating for some time in the form of a kind of fiscal stimulus admission and regret: it would have worked had it been bigger.

[Texas Fossil]

Advocating “ready, fire, aim” tactics?

[CowboyJay]

Inflation that results from booming consumer demand is economically healthy. Inflation that results from too much liquidity aimlessly sloshing around in commodity and asset markets during a period of weakening demand is as destructive as deflation and has nearly as much potential to cause a production crash.

The Fed cannot create the former through loose monetary policy, it can only create the latter. Remember the oil glut and commodity spikes of the 1970’s? They nearly ended America. Rising real disposable income is the only thing that can bring consumer demand back.